Foodtech major, Swiggy, which is in midst of raising a larger funding round, said on Thursday it will invest $700 million in its express grocery delivery service Instamart, as it looks to double down on non-food delivery categories in the coming months.
The move signals Swiggy’s aspirations to grow its quick-commerce business, as competition in the 10-minute grocery delivery space heats up. Grofers, backed by Swiggy's arch rival Zomato, also pivoted to a 10-minute grocery delivery model, earlier in August.
Swiggy also faces tough competition from e-grocery startup Zepto that launched this year and is delivering express groceries in Swiggy’s home market Bengaluru, as well as Mumbai and Delhi.
Swiggy’s Instamart service, which is serving customers across 18 Indian cities, and executing over 1 million orders per week, plans to make deliveries across locations in 15 minutes by January 2022, through ramping up its network of dark-stores.
Dark stores are physical warehouses in the city catering to only online orders. Swiggy partners with store owners to set up dedicated dark-stores within the city for its Instamart business.
“We're at the place where we feel comfortable making a huge commitment only on the back of convenience grocery. We recently touched two million transacting users and that is a drop in the ocean compared to the target segment available for this category (of express groceries). For us, the idea is to continue the path of expanding into more geographies as well as inside existing geographies, as demand builds up,” said Sriharsha Majety, co-founder and chief executive officer (CEO), in an interaction with Mint.
“Customer retention for Instamart is showing a smile curve where we saw an early dip but now, we see it growing with better customer experience and word of mouth. The (express grocery) category is still in the early stages and we expect 10-15x growth for the overall category in the next three to four years,” added Majety.
In just 15 months of launch, Instamart is already gearing towards clocking $1 billion in annualised gross merchandise value (GMV), over the next three quarters. In comparison, Swiggy’s core food delivery business clocks $3 billion in annualised GMV run rate, Majety said.
Bengaluru-based Swiggy, which recently raised $1.25 billion in July, at a valuation of $5.5 billion has been actively diversifying itself into categories of non-food delivery through various offerings including – quick-commerce (Instamart), hyperlocal-based task management service (Swiggy Genie) as well as subscription-based grocery service (SuprDaily).
These non-food delivery bets already contribute to roughly 25% of the firm’s overall revenues. Majety adds that as new business lines pick up the share of food delivery revenues may come down, over time. “I think the skew will keep evolving. Food deliveries are growing some more, but newer businesses will grow bigger and faster. Over time, if some of the experiments do well, I do think that food delivery share will not be what it is today. So directionally we think that food delivery, given how high a percentage it is, will go down,” said Majety.
On Thursday, Mint reported that Swiggy is nearing close of its $700 million fresh fundraise at a potential valuation of $10 billion-$11 billion. The deal is expected to close over the next 2-4 weeks, and will see new investor Invesco leading the round.
“We are continuously evaluating M&A (acquisition) opportunities as a company alongside building our own. I think if there is a company purely innovating on behalf of consumers and doing things differently than us, or if we feel like it's an opportunity to build an even better business, then we'll definitely be open (to acquiring),” added Majety on acquisitions to grow Instamart.
Swiggy’s focus towards express and convenience-based grocery delivery comes when rival Zomato recently abandoned its e-grocery plans this year. While for Swiggy, its active diversification towards these newer categories, as well as early success for Instamart, is bolstering investor interest, as it aims to show a path towards bolstering revenues.